Hello all,
I have a Vanguard Roth account in which I have fairly good asset allocation using 4 different index funds. What I am wondering is IF I choose to add individual stocks to my retirement portfolio, do I use my Vanguard account or do I open up a seperate account through a discount brokerage? Also, is it worth losing the power of compounding interest through my index funds by diverging some retirement money to individual stocks? Opinions?
Thanks, HH
hh snipped-for-privacy@mindspring.com wrote on [Wed, 20 Jun 2007 11:20:47 -0500]:
You can open a stock Roth account wherever you want. Just beware of minimums, trading costs and fees.
It doesn't need to be attached to your Vanguard account at all.
Most brokerages will be more than happy, however, to pull your Vanguard positions into your portfolio with them. You'd then pay transaction fees on subsequent transactions in those funds, but if you mainly need to get enough to satisfy a minimum in the account, this is not a bad plan, given how little one may add to a Roth at a time.
(E-Trade, for example, charges $20/trans in non-NTF no-load funds like Vanguard. Fidelity charges an absurd $75/ea)
If you've got the cash to start funding the account with and haven't yet made a 2007 contribution, that's a perfectly fine way to open a brokerage Roth(or non-roth) IRA to supplement your existing funds.
There are some very good arguments for having some portion of your overall portfolio as "play" money - a strategy sometimes called "core and explore" - some substantial percentage invested in, say, index funds and basically left alone. And a small bit with which to invest more aggressively/actively - to overweight a sector or buy a bit of a particular stock you like. If you're going to engage in this sort of thing, an IRA account is a great place for it - especially if it's going to be an active investment - buying and selling or invested in an aggressive fund which buys and sells a lot - by having it in the IRA, you avoid all the short/long-term cap gains tax consequences.
Thus, I'd say to probably leave the index funds alone - and open the new account with new money and in the future, at least once you get enough in that account that you satisfy minimums and such, divide your annual additional contributions between more of those index funds and your "play" account in whatever proportion you've decided to use. (bear in mind that this is your retirement and not something to play too much with - for most folks, I'd say that no more than, say, 10-20% should be "play" money, unless "play" is pretty conservative).
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